Getting extra cash is always a challenge for SMEs. Businesses that successfully receive financial backing from angel investors or VCs are few and far between. To ease cash flow, most companies will be seeking credit financing from banks.
With so many financial institutions out there in the market offering a myriad of business loan options, business owners are spoilt for choice. Yet, deciding which bank to go to is probably the easy part. The real challenge is to manoeuvre past the mountainous process that precedes a successful loan disbursement.
Just fill-up the necessary forms and submit, you say? Trust us, it's more tedious and cumbersome than that. Why? Because, firstly, different banks have different requirements and lending criteria. There's no one-size-fits-all.
Secondly, drawing up a good business proposal and making sustainable and realistic projections are time-consuming too. Add to that the to-and-fro correspondences between company and bank, it is no wonder many business owners find the process exasperating. So should business owners give up on applying for business loans? Of course not. There is a smart way to go about it: Outsource it to a reliable business loan broker.
A business loan broker, also known as an SME loan consultant, acts as a middleman between you and prospective funders. The brokers role is not just to source for the best rates and deal for you, but also ensure that the loan application process is smooth till loan inception and disbursement.
An experienced business loan broker will be well-versed in the lending process, requirements, and credit documentations. He knows the various business loans available and has all the market rates as well as the industry rules and regulations at his fingertips.
He will be able to advise you on more complicated business banking facilities such as trade financing and factoring. And given his experience with handling different loan contracts, he will also be able to better explain the terms and conditions to you, especially when it comes to the terms regarding business loan fees, early loan redemption, and penalty.
Besides the vast knowledge and experience that a broker should have, relationships with bankers and funders are important too. Having worked with many banks and financial institutions, the broker has the advantage of knowing which of them could offer the best deal.
A resourceful broker would know which bank or funder will match your needs, and he is also kept updated of new loan products and promotions. What you are paying for is his extensive contacts and networks that he has built over the years with bankers who are responsive, responsible, and reliable.
A broker does not guarantee a successful loan application every time. But, in the event your loan application gets rejected, you can count on your broker to explore other alternative funding options for you. A good loan broker would have prepared an alternative strategy - just in case.
A loan rejection is not the end of the world. A good loan broker will be able to advise you on what are the possible reasons your application got rejected, and how you can improve your credit standing over the next few months. If you trust him, he will go down to the nitty-gritty details and pinpoint the areas of your business operations that could potentially jeopardize your future loan approval, which in turn increases your chances of getting your loan approved in the future.
As mentioned earlier, different banks and financial institutions have different credit and lending criteria that most business owners are not aware of. Your broker will be able to advise you on this and save you the trouble from applying from the wrong sources.
Due to the good working relationships, your broker has with the various banks and financial institutions, your broker can submit your loan proposal to multiple parties concurrently. This will save you a lot of time from canvassing loans from bank to bank. This way, he can also get the best of the best loan terms offered in the market, and also advise you on the optimum loan deal for you, which translates into lower interest rates charged.
The above is what a good loan broker will do for you and your company. But how does one tell a bad egg from a good one?
Be wary of brokers who over-promise and guarantee a successful loan approval even before looking through your financials. The final decision lies with the bank's credit approver and - as we have mentioned many times - regardless of how competent a broker is, lending criteria differ across the banks.
If your broker is often uncontactable, takes a long time to reply to your questions, or is always feeding you with wrong information, then it is time to re-evaluate his credibility and competence before letting him have access to all your financial information.
Your broker should be transparent in the amount of commission he is charging you for his brokerage service. We have heard of terrible experience from SMEs that engaged unethical brokers who demanded them to pay a processing fee upfront or sign an exclusive broker agreement with them. We have even heard cases where SMEs are still forced to pay broker fees for loans that were approved but not accepted by SMEs due to unfavorable terms and conditions.
Bear in mind that loan brokers should only charge SMEs based upon successful loan inception, i.e. Letter of Offer signed and funds disbursed. You should both agree on the price and terms and conditions first before engaging him.
A broker usually charges a commission based on a percentage (usually between 3% and 5%, negotiable) of your approved loan amount. Other considerations include the targeted loan size (commission percentage can be reduced the higher the loan amount), the complexity of the case and, also, the financial standing of the company. That's why it is always important to find out how much commission fee a brokerage firm charges you. At b.Smart we have capped our fee transparently at as low as 2% of the loan amount.
Of course, if your company's financial standing is strong, you can save on your broker fees and do your submission to Financial Institutions with our easy comparison of the rates and terms and conditions of various lenders in Singapore here.
If you're unsure if your company can qualify for bank loans or alternative funding, try our A.I assisted loan, and the b.Smart team will send you a lending report within 24 hours. With the lending report, we can aggregate and recommend the highest chance of approval from banks, financial institutions, or alternative lenders like Peer-to-Peer lenders and B2B lenders.